2013 (8) TMI 576 - HC - Central Excise

High Court grants retrospective effect to Notification, allows modvat credit on disputed goods under Rule 57Q

M/s. The India Cements Ltd. Versus The Commissioner of Central Excise

The High Court ruled in favor of the assessee, holding that Notification No.25/96-CE (NT) dated 31.08.1996 should have retrospective effect. The court ... Modvat / Cenvat Credit - Classification of Goods - Whether the assesse would be entitled to credit in respect of goods falling under Heading 8474.90 on capital goods - Held that:- Items used in the fabrication of chimney would fall within the ambit of 'capital goods' and that the assesse was entitled to avail modvat credit in respect of the disputed items under Rule 57Q - the goods were capital goods entitled to credit under Rule 57Q of Central Excise Rules - Capital goods itself were eligible for modvat credit under Rule 57Q - the amendment under Notification No.25/96 had to be read only as clarificatory and retrospective effect had to be given for availing modvat credit. The item in question were classifiable under Chapter Heading 84.31 and they were parts of materials conveying equipments falling under Chapter Heading 84.28 - Commissioner Of Central Excise, Jaipur Versus M/S Rajasthan Spinning & Weaving Mills Ltd. [2010 (7) TMI 12 - SUPREME COURT OF INDIA] - in the light of the decision of following the Apex court decision and in the background of the circular issued by the Government of India that the benefit of modvat credit under Rule 57Q would be applicable to all components, spares and accessories of the specified goods, irrespective of their classification under any chapter heading – the assesse would also be eligible for relief – order of the CESTAT set aside – Decided in favor of assesse. Issues Involved:1. Denial of credit on disputed goods under Rule 57Q of the Central Excise Rules, 1944.2. Relevance of classification of disputed goods for credit eligibility under Rule 57Q.3. Retrospective application of Notification No.25/96-CE (NT) dated 31.08.1996.Issue-wise Detailed Analysis:1. Denial of credit on disputed goods under Rule 57Q of the Central Excise Rules, 1944:The assessee, engaged in manufacturing cement and clinker, availed modvat credit on capital goods under Rule 57Q. During the period from 23.07.1996 to 31.08.1996, the assessee took credit on components of capital goods falling under Heading 84.74 of CETA. However, as per Sub Rule (1)(a) to Rule 57Q, amended by Notification No.14/96-CE dated 23.07.1996, these components were excluded from the list of eligible goods. Consequently, a show cause notice was issued to disallow/recover credit of Rs.16,60,370/-. The Adjudicating Authority partially allowed the credit of Rs.6,93,934/- but disallowed Rs.9,66,435/- as the goods received during the specified period were not eligible under the amended Rule 57Q.2. Relevance of classification of disputed goods for credit eligibility under Rule 57Q:The assessee argued that the classification of goods under Heading 84.74 should not affect their eligibility for modvat credit as these components/spares were essential for the machinery. However, the Adjudicating Authority and the Commissioner of Customs and Central Excise (Appeals-II) rejected this contention, stating that the goods received during the period from 23.07.1996 to 31.08.1996 were not eligible for credit due to their classification under the excluded Heading 84.74. The Tribunal upheld this view, emphasizing that Notification No.25/96-CE (NT) dated 31.08.1996, which reintroduced Heading 84.74 into the eligible category, was not retrospective.3. Retrospective application of Notification No.25/96-CE (NT) dated 31.08.1996:The assessee contended that Notification No.25/96-CE (NT) dated 31.08.1996 was clarificatory and should be applied retrospectively. The Tribunal, however, rejected this argument, stating that retrospective effect could not be given to the notification to cover the period from 23.07.1996 to 31.08.1996. The assessee relied on Circular No.276/110/96-TRU dated 02.12.1996, which clarified that components, spares, and accessories, irrespective of their classification, were eligible for modvat credit. The assessee also cited the Supreme Court's decision in Commissioner of Central Excise, Coimbatore v. Jawahar Mills Ltd., which applied the 'user test' to determine the eligibility of items as capital goods.Judgment:The High Court analyzed the amendments to Rule 57Q and the relevant notifications. It observed that prior to 23.07.1996, the definition of capital goods was broader, including components, spares, and accessories irrespective of their classification. The court agreed with the assessee's argument that Notification No.25/96-CE (NT) dated 31.08.1996 was clarificatory and should have retrospective effect. The court also considered the circular issued by the Government of India, which supported the assessee's claim. Citing the Supreme Court's decision in Jawahar Mills Ltd., the court held that the assessee was entitled to modvat credit on the disputed goods under Rule 57Q. Consequently, the order of the Customs, Excise, and Service Tax Appellate Tribunal was set aside, and the Civil Miscellaneous Appeal was allowed in favor of the assessee.